New Zealand Dollar: Anchored expectations back RBNZ hikes – BBH

Brown Brothers Harriman’s (BBH) Elias Haddad notes NZD/USD briefly dipped below its 200-day moving average as the Reserve Bank of New Zealand (RBNZ) Q3 inflation expectations survey showed mixed but well-anchored readings near the 2% midpoint. With inflation still above target, stronger domestic growth and a policy rate near the lower end of neutral, Haddad sees arguments for additional RBNZ hikes, with swaps fully pricing 75 bps.

Survey supports further tightening case

"NZD/USD dropped briefly under its 200-day moving average (0.5832). The RBNZ Q3 inflation expectations survey was mixed but still well anchored."

"Expectations for one-year-ahead annual CPI inflation decreased -81bps to 2.60%, two-year ahead decreased -19bps to 2.34%, five-year-ahead increased +9bps to 2.31%, and ten-year ahead increased +1bps to 2.20%."

"Overall, inflation expectations remain close to the RBNZ 2% target midpoint for inflation, underscoring the bank’s credibility."

"Nonetheless, above target inflation, more favorable domestic growth outlook, and a policy rate near the lower-end of the RBNZ’s neutral range (2.20%-4.10%) argue for additional RBNZ rate hikes."

"The swaps curve more than fully price in 75bps of tightening over the next twelve months to 3.25% which bodes well for NZD."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor. Know more.)